SMALL CAP MOVERS: ASOS drags AIM market down after shares fall by 40% but analysts say online retailer is still a winner

Like a trendy pair of sunglasses that don’t fit your face properly, investors are urged to stick with ASOS - no matter how daft it makes them feel.

Thursday’s shock profit warning, the online clothing store’s second of the year so far, triggered a near 40 per cent collapse in the share price, down to as low as £25.30.

ASOS’s alarm bells also shook newly-listed online rival Boohoo.com, which lost about 16 per cent at one point.

Still looking good: City heavyweights believe ASOS is still a winner despite a 40 per collapse in the share price

The City’s heavyweights believe ASOS is still looking good, and if anything, more appealing, after the successive profit warnings slashed more than £3billion off the value of AIM’s largest stock.

Goldman Sachs just two weeks ago upgraded ASOS to a ‘buy’, saying at the time that weaker growth earlier in the year was not indicative of a sustained slowdown. Today, it remains of the view that ASOS has strong fundamentals.

Meanwhile, Deutsche Bank’s London-based analysts said ASOS was still ‘a long term global online winner’. Boffins at CFD and spreadbetting firm IG Markets described the collapse of ASOS share price as ‘an overreaction’ and said it could return towards the £40.00 in the coming weeks.

ASOS is the AIM’s biggest stock by quite a margin, following a number of high profile ‘promotions’ to London’s main market, and as such the slump followed through to the FTSE AIM 100 index. Standing at 3,521 this morning the blue-chip benchmark was down around 3 per cent from last Friday.

Elsewhere, a select bunch of small cap oil companies are being rewarded for something surprisingly rare - growing and making money.
The blueprint is stark in its simplicity; drill affordable wells, realise production revenues and then re-invest the proceeds in more wells.

With relatively modest injection of capital and an eye for the right kind of asset, a number of AIM oil minnows have been able to establish businesses that are now well on the way to self sustainability.

Chief among them is Caza Oil & Gas, up about 300 per cent in the past few months, as it continues to hit lucrative pay-dirt in New Mexico’s Bone Springs play. Analysts reckon the group’s net production is currently in the order of 1,400 barrels oil equivalent per day.

Investors in Leni Gas & Oil are finally enjoying days in the sun as successful drilling on the Caribbean Island of Trinidad has led to a three-fold jump in the share price. Early production from the first of thirty wells was several times better than analysts were predicting.

Canada focused Edge Resources has more than doubled in recent months, thanks to rising production and reserves. And after the last successful phase of drilling, it is now going to drill six more wells.

In the USA, Magnolia Petroleum is another oil junior with a focus on incremental production and reserve growth, and despite a dip in recent months, remains one to watch for small cap investors.

Meanwhile, Northcote Energy got a boost this week as it revealed operations at the Zink Ranch property, in Oklahoma, was exceeding expectations.

Perhaps it is typical that as investors begin to appreciate steady value appreciation, one of AIM’s more ‘punty’ oil themes - the Falkland Islands - also re-appears on the agenda.

This week it was announced that a cohort of oil and gas firms had signed a contract to take a semi-submersible drilling rig for a new phase of exploration in the Falklands.
As many as twenty-two new wells will be drilled in the latest crusade, which will start early next year.

So far a total of six wells have been committed to, however, there are options for another sixteen wells - eight must be taken up before the rig departs for the South Atlantic however.
This optionality may be of particular interest to investors in Argos Resources, which has the most prospective acreage near the Sea Lion field.

Argos needs to arrange funding in order to drill and it has been holding talks with potential farm-in partners in that regard.
Whether or not any of the sixteen options in the rig deal announced today are earmarked for Argos’s plans remains to be seen, though the apparent flexibility suggests there may be room for manoeuvre.

In the mining sector, south America focused Herencia Resources declared it had made a ‘dream start’ to drilling at the Picachos copper project in Chile, where results have shown the potential for open pit mining. On AIM the exploration share was up 25 per cent this week.

But an announcement from London Mining spooked investors after it imposed travel restrictions on staff and visitors to protect against an outbreak of the deadly Ebola virus. Production from its mine was not affected, it said.

African Minerals, which also fell following its rivals announcement, said its operations were 200kms away from the ebola areas and its operations continued to be unaffected.